The Board needs to improve its policies and procedures over payroll to ensure that Town officials maintain adequate time records, accurately calculate gross pay and verify and monitor leave use. The Supervisor's secretary performed virtually all payroll functions without sufficient compensating controls in place. While the Supervisor reviewed and certified final payrolls, his reviews were inadequate. As a result, employees received compensation at pay rates that were not Board-approved, six employees did not receive the correct gross pay in 2012 and eight employees did not receive the correct gross pay in 2013. These employees received combined overpayments totaling $3,890 and combined underpayments totaling $154. Finally, employees' leave accrual records were not accurately maintained. As a result, we found errors in the leave accrual records for all Town employees totaling 442 hours, valued at $8,198.

We found that the Board did not properly authorize all capital projects, monitor activity and approve the close out of all completed projects. Two projects were completed in 2009 but remained open as of December 31, 2013. The Board also contracted with an accounting firm (Firm) to assist the Supervisor in fulfilling his financial duties. However, the Supervisor did not adequately oversee and monitor the Firm's work. As a result, there were significant problems with the accounting for and reporting of capital project activity, as well as the use of certain debt proceeds. Moreover, the Town's records did not agree with the annual financial reports. The Firm recorded capital project activity for town hall renovations in operating funds together with routine operations. Expenditures from these operating funds were more than $292,000 in 2012. The Firm also incorrectly recorded $100,000 in bond proceeds in the water fund instead of the capital projects fund. Consequently, the $100,000 debt proceeds were improperly used to pay operating expenditures. The commingling of capital project resources and transactions in operating funds does not allow for capital activity to be appropriately monitored against project authorizations approved by the Board and does not comply with legal requirements related to debt proceeds. We also found that two water districts still owed the general town-wide fund almost $58,000 as of December 31, 2013. Further, the Town improperly transferred $140,000 from the highway town-wide fund to the general town-wide fund for the completion of the town hall project in 2012.

The Board does not audit and approve claims before they are paid from the administrative checking account (ACA). Furthermore, the Board authorized the Library Director and an administrative assistant to manage this account, sign checks and pay vendors before submitting claims to the Board for audit and approval. The Treasurer does not have access to or custody of the funds maintained in the ACA. Without a proper audit and approval of Library claims by the Board prior to payment, the Board cannot be assured that all payments are for legitimate Library purposes or that taxpayer dollars are being disbursed in the most prudent and economical manner. In addition, the Board appointed an independent contractor as the Treasurer, who did not take an oath of office and is being paid through a claim voucher rather than through the payroll system. Because the Treasurer is responsible for the care and custody of Library funds, the Board cannot delegate these functions to an independent contractor. Finally, the Board did not require the solicitation of competition at reasonable intervals when procuring professional services.

During the period June 1, 2012 through November 30, 2013, the Village paid 3,144 claims totaling $4,407,665. We reviewed a sample of 25 claims totaling $59,446, and related abstracts and Board minutes to determine if the claims had been properly audited and approved by the Board for payment. None of the abstracts that we reviewed included the Clerk's signature or a statement indicating that the Board had audited the claims. In addition, there is nothing to show which abstracts were approved by the Board because all Board minutes reviewed included the vague statement “Approve payment of attached bills and allow Treasurer to make necessary transfers.” Board minutes do not include sufficient information such as abstract numbers, abstract dates or the numbers and dollar amounts of claims to document which claims are authorized for payment. Furthermore, five of the claims that we reviewed were not listed on any abstract. Our review of the 25 claims totaling $59,446 also found that each claim was deficient for one or more reasons. Finally, seven of the claims reviewed were paid without a written contract or agreement between the service provider and the Village.

The Board consistently and significantly overestimated District expenditures from the 2010-11 through 2012-13 fiscal years, which caused the District to realize annual operating surpluses totaling approximately $1.5 million for this period. Each year, the District appropriated fund balance that it did not use. It then transferred surplus moneys to reserves at the end of the fiscal year, instead of appropriating funds to increase the reserve balances in the annual budgets. This increased the reserve balances while allowing the District to maintain its unexpended surplus fund balance amount at the legal limit. Furthermore, in spite of the operating surpluses, the District raised the real property tax levy by an average of approximately $326,000 in each year of our audit period. When the District achieves annual operating surpluses, District officials should pass on the benefits of these surpluses to District taxpayers.

The Board does not have written policies, procedures or Board resolutions to govern electronic transfers. As a result, the Treasurer and a payroll clerk processed electronic transfers without adequate segregation of duties or documentation of transactions. None of the 98 electronic transfers in our sample, totaling $42.9 million, had evidence that at least two people were involved in transaction processing, and the payroll clerk was allowed to process 10 transfers totaling $3.9 million without the Treasurer's or any other official's approval. Further, nearly half of the transactions in our sample did not have a written confirmation from the bank as required by law. The District also did not retain any supporting documentation for 44 transfers totaling $12.0 million.

The District has accumulated in excess of $2.4 million that should be used to benefit taxpayers by paying off debt, financing one-time expenditures, funding necessary reserves and/or reducing property taxes, in accordance with applicable statutory requirements. District officials did not ensure that budgets were realistic or maintain reserves in accordance with statutory requirements. District officials routinely overestimated appropriations. For example, for the five years ending June 30, 2013, District officials have overestimated appropriations by a total of $6.3 million. These budgeting practices generated $1.36 million in operating surpluses, which caused the unexpended surplus fund balance to exceed statutory limitations for the past five years. Furthermore, the District has accumulated a total of $2.5 million in its reserve funds. We found that the Employee Benefit Accrued Liability Reserve is overfunded by 81 percent or $984,000. Also, the $727,000 balance in the Retirement Contribution Reserve is sufficient to cover the associated liabilities for at least three years and the $80,000 balance of the Insurance Reserve has no associated liabilities. Therefore, we question the District's need to maintain these reserves at their current funding levels. District staff also did not always obtain verbal or written quotes prior to procuring goods and services in accordance with purchasing policies and guidelines. We reviewed purchases of 21 types of goods and services totaling $114,629 and found that 12 goods or services, totaling $66,804, were obtained without any type of competition. For example, during 2012-13, District staff purchased paper towels totaling $8,262 and tires totaling $5,193 without obtaining three written quotes from vendors as required.

We found that District officials established adequate internal controls over leave accruals. District officials implemented specific controls to ensure employee leave accruals were earned in accordance with the employee's employment contract and/or CBA. We also found District officials established controls to ensure the accrual and use of leave time were recorded accurately.

The Board entered into a contract with a charter management organization (CMO) to provide management services through a memorandum of understanding (MOU). The MOU specifies the management fee that the School pays annually to the CMO; this fee for the 2012-13 fiscal year was $695,028. The School also reimbursed the CMO over $300,000 for expenses paid by the CMO that were in addition to the management fee. The School also paid $396,406 to a wholly-owned subsidiary of the CMO for the lease of its school facilities. We identified significant concerns with the lack of detail contained in the MOU. Without clear and concise contract language, the School does not have a firm agreement detailing what services are included. If the School is paying for expenditures that should be covered by the management services agreement, it will have fewer funds to improve operations, add schools or to spend on student education. The absence of a clear and unambiguous contract increases the likelihood that taxpayers have paid for goods and services that have not been received.

The City did not resolve 955 violations issued during the audit period or about 83 percent of the total violations issued. As a result, the City did not receive a minimum of about $86,000 in violation fees the Building Department could have collected had all these violations been resolved. The City currently has about 4,900 violation cases unresolved since 2004, with minimum fines due totaling $440,000. Collecting the fees from resolved violations could significantly increase revenues, well exceeding the $15,000 in violation fees collected during our audit period. Additionally, the Law Department did not pursue collection for all unpaid Court-imposed building violation fines. We identified cases with unpaid fines totaling $12,000. These fines remained unpaid from seven to 20 months because the Law Department did not request Court judgments required to enforce collection. We also found that the Law Department does not review the status of settled cases, enforce Court-ordered judgments and pursue fine collection. As a result, the City is not collecting all the fines to which it is entitled.

The budget includes nonrecurring revenue of $28 million, authorized by Chapter 55 of the Laws of 2014, which will not be available in future years and will create a funding gap. The City continues to rely on fund balance for recurring expenditures. Revenue estimates for sales tax may be optimistic. The budget includes $5.3 million in revenue generated by red light cameras; the legislation authorizing this revenue is set to expire on December 1, 2014. The City continues to rely on debt to pay for tax certiorari settlements, incurring debt and interest costs. The appropriation for firefighter overtime may not be adequate.

The Board needs to improve its oversight of the Department's financial activities to ensure that sufficient controls are in place to safeguard Department assets. Although the Treasurer verbally updates the Board on bank balances at the monthly meetings, he does not provide written monthly or annual financial reports. While the Treasurer does prepare monthly bank reconciliations, the Board does not review them or periodically review the bank statements and canceled check images which could help identify an improper disbursement. Furthermore, there was no documented order signed by the Secretary and President listing the bills approved by the Department members for any payment made during our audit period. The Board also failed to ensure that all disbursement checks contained two signatures as required by its bylaws. Finally, the Board did not appoint an Auditing Committee of three members to examine the Department's finances each year.

The Board needs to improve its policies and procedures over payroll to ensure that Town officials maintain adequate time records, accurately calculate overtime pay and monitor leave accrual use. As a result of the deficiencies we identified, Town officials overpaid 13 employees by more than $3,500 in overtime pay even though the Town personnel policy states that leave time should not be included in the calculation of overtime. For example, 10 highway employees each received 16 hours of paid holiday leave for Thanksgiving and the following day, which was also included as time worked. These employees received inappropriate overtime pay for 151 work hours that should have been paid at their regular pay rate resulting in an overpayment totaling $1,390. Lastly, prior to their retirement, two former highway employees were allowed to use 1,240 sick leave hours valued at more than $24,000, including 136 hours of paid sick leave to which they were not entitled.

Despite the budgetary processes used by Village officials, the Board has not adopted structurally balanced budgets with reasonable estimates for revenues and appropriations for the general, water and sewer funds. Specifically, Village officials repeatedly underestimated revenues and overestimated appropriations in these three funds' budgets for the 2010-11 through 2012-13 fiscal years. General fund revenues were underestimated by a total of approximately $743,000 (10 percent) and appropriations were overestimated by a total of approximately $1.24 million (13 percent) over the last three fiscal years. The Board also planned for general fund operating deficits in each of the three years reviewed and appropriated a total of approximately $1.81 million to fund the ensuing year's operations. Due to unrealistic budget estimates, the general fund only used about $46,000 (2.5 percent) of total appropriated fund balance during this time. As a result, year-end fund balance has remained relatively stable in the three years reviewed. The water fund has consistently maintained unrestricted fund balance amounts in excess of 300 percent of annual expenditures. The water fund's unrestricted fund balance has increased by approximately $358,000 (41 percent) from fiscal years 2010-11 through 2012-13. Finally, even though the sewer fund appropriated fund balance each fiscal year to partially finance the subsequent year's operations, the total unrestricted fund balance has increased by approximately $166,000 (124 percent) from fiscal years 2010-11 through 2012-13. For all three funds, the Board has continued unrealistic budgeting practices with the current budget for fiscal year 2013-14 and the recently adopted budget for fiscal year 2014-15. As such, it is likely that each fund will have results of operations consistent with those in previous years.

District officials have underestimated revenues and overestimated expenditures for the budgets for the 2009-10 through the 2012-13 fiscal years. As a result, the District had operating surpluses totaling almost $1.6 million during this four-year period. Although the Board appropriated unexpended surplus funds each year to help fund the subsequent years' operations, the District did not actually use any fund balance. Furthermore, the District has accumulated unexpended surplus funds of up to two times the amount allowed by statute. District officials used some of the annual operating surpluses to fund six reserves that, as of June 30, 2013, totaled $1.7 million. However, two of the reserves, with balances totaling over $1 million, had excessive balances and no formal plan for funding or using the reserves. As a result, the financial transparency to the taxpayers was diminished and real property tax levies have been greater than necessary to fund operations.

District officials have generally taken appropriate action to manage the District's financial condition. Although the District generated operating surpluses and increased fund balance by $1.4 million from fiscal years 2008-09 through 2010-11, for fiscal years 2011-12 and 2012-13, the Board adopted more reasonable budgets which resulted in actual planned operating deficits and reduced fund balance by almost $2 million. The Board also used excess reserve funds to pay off debt. In addition, the District has entered into inter-municipal agreements, as well as District-specific initiatives, that have resulted in cost savings. Finally, although the Board and District officials have developed some long-term financial planning, a multiyear long-term plan that addresses revenues and expenditures, as well as the use of fund balance and reserves, would greatly benefit the District.

We found that internal controls over cash receipts in the Culinary Arts Department (Department) are properly designed; however, they were not operating effectively. The Board adopted a policy that provides specific guidance to College employees responsible for collecting, recording and depositing cash but the Department's employees have not complied with the policy. The cash handling policy requires employees to submit all cash received to the Bursar in a timely manner. We found that the 23 cash collections totaling $18,620 from the Dining Room were appropriately posted to the records and submitted timely and intact to the Bursar as required by the Board's policy. However, of 166 cash collections from the baking class, the bakery and the butchery, totaling approximately $21,400, 149 totaling $20,569 were not submitted to the Bursar in a timely manner. The collections we tested from the baking class, the bakery and the butchery were not always remitted to the Bursar intact. Because cash collections were not deposited timely and intact, and cash collections were used to fund purchases, the internal control structure established by the Board is weakened.

We commend the Justices for establishing strong internal controls over Court operations. The Justices implemented specific controls to ensure Court money collected was properly recorded in the Court records, deposited in a timely manner and accurately reported to the Justice Court Fund on a monthly basis. The Justices also implemented various control procedures over the Court's financial activities that provided adequate supervision and oversight.

Internal controls over the claims audit process were not appropriately designed to protect and account for Library assets. The Board's procurement policy assigned authority for the approval of claims to the Director. The Board does not have any other policies or procedures to ensure claims are adequately documented, audited and approved. Furthermore, delegating authority for auditing and approving claims to the Director was not appropriate because it did not achieve an independent audit of claims and segregate the incompatible duties of making purchases and approving claims for payment. The Board did not properly audit or approve claims. Library officials did not number claims sequentially or require employees to document the receipt of goods or services being billed for on each claim. Furthermore, claims were approved either by the Director or by the Library Clerk. In some instances, claims were remitted directly to the Treasurer for payment without review or approval by the Director or the Library Clerk. Although one Board member reviewed claims as a part of the check-signing process, they were not reviewed by any other members of the Board. Additionally, the Board member who reviewed the claims did not document his review and approval by signing the claims. The Board member also did not verify that the Director or Library Clerk signed the claims that they audited.

Village officials need to improve internal controls to ensure that water, sewer and electric user charges, totaling approximately $2.7 million annually, are properly billed, collected, recorded and deposited. The duties for billing, collecting and recording payments are not segregated. In addition, customer account adjustments are not independently approved and the computerized billing system does not provide an audit log or change reports to show the adjustments that have been made. Although a control account is maintained for the water and sewer charges, it is separate from the Village's accounting records and cannot be reconciled, with differences ranging from $5,000 to $7,000 per month. Furthermore, there is no control account for the electric charges.